Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Uh huh. I found a similar pattern in winning lottery numbers a few years ago.
Funny thing though, when I made a big prediction based on the pattern I found, it didn’t come to pass. It was like the numbers moved randomly, without even consulting my study!
When your examination of the pattern that you believe helps in picking lottery winners is awarded a Nobel prize, I will put up a post about it here and let my readers decide for themselves whether it is something they want to make use of or not.
If you believe that Shiller should not have been awarded a Nobel prize for his work, you should make that case. You might be right. You might be helping people by making that case. You don’t make the case in an effective way by advancing death threats or demands for unjustified board bannings or thousands of acts of defamation or threats to get academic researchers fired from their jobs. Those sorts of acts are over the line. MAKE THE CASE for Buy-and-Hold and you are on the right side of the line.
One thing that I like about this comment is that there is a certain honesty lurking underneath its surface. Those who truly believe in Buy-and-Hold (and you Goons are True Believers, if nothing else!) really do see the idea that stock returns can be effectively predicted far in advance as pure mumbo jumbo. That follows from their belief that the market is efficient. If the market is efficient, valuations sure as heck cannot predict long-term returns! Shiller was engaging in silliness to even test such a proposition.
But here we are. He did test it. And the proposition passed with flying colors. It was Buy-and-Hold that was discredited. What to do, what to do?
We should be trying to figure out which belief system, the one that told us that the market is efficient, or the one that told us that valuations affect long-term returns, is right. To do that, we need to hold a debate. The Buy-and-Holders should be doing just what you do here — they should be pointing out the absurdity of Shiller’s findings, given their core belief that the market is efficient. They should try to be polite about it. They can show respect for Shiller’s accomplishments while pointing out the error that they believe he made, as I hope I always show respect for Bogle’s accomplishments while pointing out the error he made. But they should try as effectively as possible to make the point that Shiller must be wrong given their core beliefs.
Buy-and-Holders don’t do that today. They don’t talk about him much. They don’t see that he has much value given what his research says. But they generally do not engage with Shiller’s ideas. They sometimes acknowledge that there is a guy who was awarded a Nobel prize for showing that valuations affect long-term returns. But they patronize him. They acknowledge what his research shows and go right back to recommending strategies that don’t call for the exercise of price discipline when buying stocks as if Shiller’s research did not exist.
Peer-review committees comprised of Buy-and-Holders approve retirement studies that do not contain valuation adjustments. Huh? What the f? Peer-review committees are supposed to be familiar with the literature in a field. The members of a peer-review committee are required as part of their JOB to know that there is 36 years of peer-reviewed research showing that valuations affect long-term returns. The committee that examined the Trinity study should have rejected it on grounds that it contained no valuation adjustment, as required by years of peer-reviewed literature. But they didn’t do that. They approved the Trinity study despite its lack of a valuation adjustment. Which is what made Greaney believe that it would be “okay” if he too “forgot” to include a valuation adjustment in his study.
We cannot as a society continue to duck these questions. Either the market is efficient or it is not. Either valuations affect long-term returns or they do not. It cannot possibly be that both propositions are correct, the two propositions are in direct conflict. We are facing a national catastrophe in the event that it turns out that the proposition with 36 years of peer-reviewed research and a Nobel prize behind it is correct. In the event that Shiller is right, our entire society is in for a world of hurt in the event that the stock market continues in the future working anything at all as it always has in the past.
We should be as a society working hard every day to figure out which of the two Nobel-prize-approved propositions is correct. We should be debating these questions at every discussion board and blog on the internet. In a civil and reasoned way, in a way aimed not at bullying those holding other viewpoints into silence but aimed at gradually over time uncovering the truth re these matters.
This is my strongly held sincere viewpoint, in any event.
I naturally wish you the best of luck in all of your future life endeavors, John.